Orange Flag 3: FY2018 Perspective
Quote:
Originally Posted by
percy
TRA are big ticket clippers.
Sale of vehicle...……………..Ticket clipped.
Finance of vehicle...………..Ticket clipped
Insurance…………………………Ticket clipped.
Vehicle service...……………..Ticket clipped.
Development of sites...…...Ticket clipped.
MTF non recourse loans.....Ticket clipped
Debt management services,Ticket clipped.
More and bigger tickets to clip.
I agree with Percy's observation, right up until that last line. I sincerely hope it isn't Turners policy to string the buyer along all the way through the car ownership process, clipping the ticket all the way, with the ultimate objective of getting the car back as a failed debt, leaving the owner penniless and jobless (because he can't drive to work)!
Nevertheless I should point out that the strength of this business model is also its weakness:
No Sale of vehicle...…………means...
No Finance of vehicle...……….and...
No Insurance needed…………..and...
No Vehicle service needed...…which means....
Developed Sites become superfluous...(at least these have been sold off to third party landlords, so it is they and not Turners who will suffer) .
also....lower MTF non recourse loans....means a reduced dividend from that source.
What I am saying here is that a very weak car market could see all Turners divisions fall over like dominoes, bar one:
Debt management Services,Ticket clipped.
Turners should at least maximise what they can salvage by chasing their own debtors!
Quote:
Originally Posted by
Snoopy
Turners have not insignificant borrowings. Question: So how is the 'interest rate charged' trend for TNR looking?
|
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Interest Expense (A) |
$7.381m |
$11.436m |
$11.350m |
$14.344m |
Total Liabilities |
$207.970m |
$232.491m |
$384.917m |
$437.662m |
Total Borrowings |
$156.995m |
$174.816m |
$265.889m |
$317.373m |
Averaged Borrowing Balance (B) |
|
$165.906m |
$220.353m |
$291.631m |
Implied Borrowing Interest Rate (A)/(B) |
|
6.9% |
5.2% |
4.9% |
The other issue for Turners going forwards is rising interest rates. It strikes me that 4.9% is unusually low as a borrowing rate for this type of business. If the average borrowing interest rate went up to 6.9%, the sort of rate Turners was paying just two years ago, then the annual interest bill could leap from $14.344m to $20.199m. A near $6m rise in interest charges would hit NPAT by about $4m - ouch!
Note that I am not forecasting that any of this definitely will happen. But I think investors should be aware of these potential risks.
SNOOPY
Capitalised Earnings Valuation: FY2018 Perspective
Quote:
Originally Posted by
Snoopy
I think of Turners as:
1/ Riding a cyclical car market PLUS
2/ Adding an incremental growth premium on top of this.
Valuing 1/ is relatively easy. Valuing 2/ I find much more difficult.
My 'Capitalised Dividend' valuation for this share was a failure. But after some soul searching, I believe that 'capitalising earnings' is a more realistic way to go.
Turners Automotive Group Limited (TNR/TRA) |
|
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Snoopy Normalised Earnings Per Share {A} |
|
19.4c |
24.2c |
22.5c |
25.6c |
Dividend Paid (per share) {B} |
|
9c |
12c |
13c |
14.5c |
Underlying Retained Earnings (per share) {A}-{B} |
|
10.4c |
12.2c |
9.5c |
11.1c |
I favour using at least five years of data when doing an exercise like this. However, when considering a company as fast evolving as Turners Automotive Group there comes a point when historical data used as a proxy for what might happen going forwards becomes positively antiquated. So I have reverted to using just four years of data which covers the period from when TRA was conceived in its current form.
The valuation is in two parts. Once again I am using an acceptable gross return of 7.5% for the dividend part of it.
Average dividend received over the last four years
(9c+12+13c+14.5c) / 4 = 48.5c, divide by four = 12.1c
Gross Capitalised Dividend Component = 12.1c / (0.075 x 0.72) = $2.24 (1)
Average Retained Earnings Valuation reinvested over the last four years
All things going to best plan, retained earnings should be worth more than cash paid as a dividend. But this assumes a largely monotonic increasing profit year in year out, with very few exceptions. I don't believe that the historical underlying profitability data indicates that Turners can achieve this. So I think it wise to assume that a 'dividend in the bank account' is worth more than a 'potential dividend in the bush'. To reflect 'business execution' and 'car market volatility' risks, I am going to increase my required return for 'retained earnings' by two percentage points, out to 9.5%
(10.4 + 12.2 + 9.5 + 11.1)/4 = 10.8c (average)
Gross Capitalised Retained Earnings Component = 10.8c / (0.095 x 0.72) = $1.58 (2)
So my total 'fair valuation' for TRA becomes (1) + (2):
$2.24 + $1.58 = $3.82
Thus at a market price of just over $3, it looks like TRA might be worth accumulating!
SNOOPY